Study From Prof. Heski Bar-Isaac: Online Rankings of Hospitals May Be Detrimental to Patient Welfare

— June 14, 2012

Institutions have been shown to allocate resources to the areas on which the rankings focus, even if their customer might have been better served by allocating those resources differently.

Hospital report cards and other readily available rating information may be harmful to consumers in the long run, say Associate Professor Heski Bar-Isaac and his co-authors Guillermo Caruana of Centro Estudios Monetarios y Financieros and Vicente Cuñat of the London School of Economics in "Information-Gathering Externalities for a Multi-Attribute Good" (published in the Journal of Industrial Economics).

Drawing from the example of business schools rankings, which have now existed for more than a decade, the researchers present a model to show why rankings, while seeming to be helpful, can introduce a distortion in the marketplace that may not be in the best interest of the consumer. Institutions have been shown to allocate resources to the areas on which the rankings focus, even if their customer might have been better served by allocating those resources differently.

The research has implications for healthcare as online hospital rankings gain favor. People traditionally chose hospitals through extensive research and word-of-mouth recommendations; and a likely consequence of this process was that hospitals were motivated to work for the overall best health outcome of each patient. If patients now choose hospitals based on an online database that grades the facilities on a certain number of set criteria, hospitals are more likely to focus their efforts on these areas to the exclusion of others, and potentially to the detriment of patient welfare. As one example, hospitals ranked on the attractiveness of hospital rooms might be more likely to dedicate resources to renovations, even though hospital patients could be better served by allocating those resources to an increase in nursing staff.

The framework also raises the question of whether hospitals will influence the information that candidates or consumers access in a way that benefits the institution rather than the consumer.